-horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. Our model has an i …

including the Black-Scholes setup with infrequent trading, and a model with stochastic stock volatility and a varying riskfree …

This essay examines what volatility tests tell us about the data and what implications we should derive from them. It … argues that volatility tests do not tell us that "prices are too volatile", implying that "markets are inefficient", but … argues that the discount rate residuals documented by volatility tests (and equivalent return forecasting regressions or …